The Economic Case for Fighting Climate Change
Gina McCarthy

Ethics, not economics, has been, and must continue to be, the primary motivation for protecting the environment and mitigating climate change. I applaud the tenacious efforts of Gina McCarthy and others at EPA to protect the environment, however, economics is not and cannot be the primary motivation for environmental protection. The most powerful sentence in Administrator McCarthy’s statement is: “What kind of world do we want to leave behind for our children and grandchildren?” I would add: “And, what is our moral and ethical responsibility for the future of humanity?”

I do not disagree with anything in her statement regarding the economic opportunities resulting from past environmental regulations or the potential opportunities arising from future programs to mitigate climate change. However, we need to understand that those economic opportunities were the result of laws and regulation that were motivated by our collective sense of moral responsibility to take care of the environment, not by our individual economic self-interests. In fact, as McCarthy suggests, every significant environmental law and regulation has been opposed by those in the affected industries. For example, the coal and petroleum industries continue to oppose the limits on carbon emissions needed to mitigate climate change.

The simple fact of the matter is that it is cheaper economically to extract and pollute than to conserve and protect. I have a PhD in agricultural economics and 30 years of academic experience in four state universities. We need to understand that economic value, at least as we understand it today, is inherently individual, instrumental, and impersonal in nature. As a result, it makes no “economic sense” to investment in anything if the benefits are expected to accrue to society in general rather than to you in particular. It certainly makes no sense to invest if the returns will be realized after you are dead. Since life in uncertain, the economy places a premium on the present relative to the future. That’s what paying and charging interest on loans and discounting further economic costs and returns are all about. Finally, if you can’t buy, sell, or trade something, it is of no economic value.

The natural environment doesn’t really belong to anyone in particular. However, it’s obviously essential for life and human well-being. So, we all must accept a responsibility to care for it for the benefit of all. It has no economic value until someone is granted the privilege of taking individual economic ownership of it. There are tremendous potential profits in extracting usefulness from natural resources and dumping the wastes into the environment. As long as resources were plentiful and the environment was clean, the economic benefits of extraction and pollution seemed to outweigh the environmental and social costs.

As natural resources became scarcer and more economically valuable, we began to impose minimal costs and restrictions when granting privileges of resource exploitation. Those who had been profiting from extraction and pollution naturally opposed such limits. They were protecting their economic interests. However, those same limits and restrictions created new economic opportunities for those who were willing and able to operate within the bounds of the new environmental regulations. The EPA eventually was formed to implement the increasing number of government programs needed to protect the natural environment. EPA programs have not been limited to regulations but have included subsidies and incentives which add to the potential profits associated with environmental protection. Again, those in extracting and polluting industries naturally oppose such programs because those benefiting from the grants, tax credits, and such are their competitors.

Economic costs of EPA’s environmental protection programs are paid by consumers and taxpayers. Consumers ultimately pay for increases in costs of production and taxpayers for the various subsidies and administration of the programs. There is certainly nothing wrong with this approach. Consumers and taxpayers just need to understand that we are paying the costs. In fact, that’s what governments are supposed to do: allow us to do things collectively that we simply cannot do individually — such as fulfilling our moral and ethical responsibility to conserve our natural resources and protect our natural environment.

For this reason, I think it is a mistake to create the impression that by responding to economic incentives people are going to do the things necessary to mitigate climate change or otherwise protect the environment. I know McCarthy didn’t come right out and say that, but the tone of her statement, and of much of the other environmental rhetoric of both federal and state governments, tends to give that impression. The upcoming political campaigns will be filled with claims that saving the environment will create jobs and grow the economy. Perhaps mitigating climate change will create more jobs than it destroys in highly-mechanized resource extraction and polluting industries. It hopefully will save the economy from long-run collapse. However, when future economic benefits are discounted to their net present values, we should not expect mitigating climate change to be a sound economic investment.

None of the economic opportunities will be realized if we fail to understand and keep in mind that effective limits and bounds of resource extraction have been and must continue to be a reflection of moral and ethical values. Consumers and taxpayers ultimately must willing to pay the economic costs of reflecting their values by supporting effective limits on emissions of greenhouse gasses. This means keeping most of the remaining fossil energy reserves in the ground, converting to solar energy, and a lot other things that will be opposed by the affected industries — for logical economic reasons.

Does it really matters whether the incentives are economic or ethical? In other words, is it important that we do the right things for the right reasons? The short answer: Yes! As noted anthropologist Gregory Bateson put it, “The ecological ideas implicit in our plans are more important than the plans themselves.” [i] If we get the impression that environmental protection must make economic sense, we will abandon our commitment to mitigating global climate change — much as we have abandoned many of our earlier commitments to conservation and environmental protection. If we do the environmentally right things, but for the wrong reason — for economic reasons — the environmental movement ultimately will fail.

It is fine to acknowledge that EPA programs that mitigate climate change will create opportunities for people to profit by doing the right things. However, we cannot forget that those profit opportunities arise only because we as consumers and taxpayer are willing to do the right things for the right reasons: to fulfill our moral and ethical responsibilities as caretakers of the earth.

[i] Gregory Bateson, Steps to an Ecology of Mind, (Chicago: University of Chicago Press, 197, 2000), p 512.